How-to Use SaaS Pricing Discounts to Grow Revenue

Generally, I like to avoid discounts because the way they’re done most of the time can will devalue your offering in the eyes of the customer.

And that’s because most of the time, discounts are a cop out. It’s just easier to lower the price than to do the work necessary to sell at full price (or even higher).

I can’t help you if you just want to lower your price whenever someone objects, but if you want to NOT do that, and are interested in using discounts to actually GROW your business, well, then here are my three rules for using discounts.

Table of Contents

1. Price Objections are Value Objections

If someone objects to your price, yet they have the means to pay it (i.e. no matter how much I understand the value of a Bugatti Veyron, I can’t pay $2.5M for a car), then it’s not the price they’re objecting to.

The value they perceive simply does not match the price you are asking.

You can either lower the price permanently or in the form of a discount, and maybe get people who originally objected to your offering to pay (while calling you a sucker and thinking of other ways to rip you off or waiting for a more valuable solution to come along)…

… or you can work harder to raise the value perception of your service to match the price you’re asking.

Amateurs do the former… pros do the latter.

BTW, you could also be attracting the wrong customer; you may need to identify an Ideal Customer that immediately perceives the value in your SaaS congruent with the price you’re asking.

Those images are from this ~35 minute video on SaaS Value Pricing… watch it if you need a refresher on the basics (everyone probably needs a refresher on the basics!).

2. Discounts should get people to pay you more… not less

I take flak for this all the time… until people try it and it produces crazy-awesome results. Please, don’t send flowers when you try this and it works… a simple “thank you” is all that’s necessary. And money.

Like I said above, there are no absolutes here. Sometimes discounts are cool, like when you can get people who convert to pay you MORE than they were originally going to… by offering a discount.

Let me explain.

If someone self-selects the $50/mo plan when they start your trial, or if their usage during an unlimited trial or trial not tied to a pricing tier indicates they should select the $50/mo plan, what can we do to get them to convert at, say, $75/mo instead of $50/mo?

Well, we could take the next tier up – $100/mo – and give them that tier for ONLY $75/mo. We could do that forever (until they upgrade/downgrade/cancel – a good reason to not cancel, especially if the price has gone up even more later) or for a limited time, like 6-months.

Either way, that could be a mighty enticing offer, especially if triggered based on their actual usage during the trial (i.e. once they complete the CCAs, make them the offer… I like to use One Time Offers that will never be available again).

This is how we took one client’s time from sign-up to conversion on a 30-day Free Trial to just 3 days (you read that right) AND increased Average Subscription Value (ASV) by 33%.

Yep.

In fact, this is a great reason to tie your trials to a pre-selected pricing tier, but make it unlimited so they use or get exposed to advanced (more expensive) features. Of course this works really well if your pricing plans are segmented on high-value metrics and not low-value commodity metrics (i.e. storage, bandwidth, etc.).

Let’s bottom-line it… if you can get them to pay $75/mo at conversion instead of $50/mo, even if they never expand their usage beyond that, you drove up LTV 50% simply by offering a SMART discount at the right time.

Yep. Yep.

Oh, you could also make up a pricing tier that doesn’t exist publicly (yet) and offer that to them, thus avoiding any “discounting” altogether, but that’s a story for another day.

3. To be really effective, discounts require scarcity

Whether that scarcity is the amount of time the discount is available, the number of discount subscriptions available, etc. it needs to be there.

This is both a customer-facing issue… but also internal.

Externally, if you don’t put some bookends on the offer, it looks like you’re just discounting your product for no reason (or, several reasons like your product sucks, you don’t value it, you’re desperate, you don’t know how to market your product, you’re a sucker, etc.).

Scarcity also gets people to take action… no scarcity, no sense of urgency to take the offer.

If you’re using the discount the way I describe in #2 above and growing LTV by 50% on each transaction, you’re good… time to step on the gas!

But if you’re using traditional discounts – especially things like annual pre-pay discounts – then putting bookends on the availability of the discount internally (i.e. offering just enough to make-up for that cashflow crunch you’re having), it means you won’t use it as a crutch.

It means you’ll have to actually figure out how to attract better customers, raise the value perception of your offering… or, ideally… both.

I mean, if you really do have cash flow issues, then figure out how much you need and offer only that many annual subscriptions, then stop offering them.

A Note on Discounts in Enterprise SaaS Deals

Just so we’re clear… discounting in an Enterprise deal is common, but you generally start from a much-higher price than the “retail” pricing on your marketing site.

Plus, discounting is generally done behind-the-scenes, one-off for each client, under NDA, etc. and therefore doesn’t have the same negative effect as plastering huge discounts all over your marketing site might have.

Plus, you generally trade the discount for a logo, right? Quid pro quo, am I right? You did that, right? C’mon, man.

Also, in many Enterprise SaaS deals, long-term contracts are the norm, and generally they allow for expansion revenue possibilities by locking in the rates of add-ons, higher pricing tiers, etc.

And just in case you’re thinking “Who cares about contracts, this is SaaS!” just know that contracts are required in many market segments with certain types of customers and you probably aren’t in a position to change that yet.

Oh, and a little trick I like to use on “retail” pricing pages is to have a link to a lead-capture landing page for “Enterprise” clients and both on the pricing page and that landing page say: “Enterprise pricing starts at $xxxx.” More on that Enterprise SaaS “hack” here.

By the way, having the “pricing starts at…” really sets the tone for the conversation if someone calls or fills out the form, since they know we’re starting at $xxxx.

It correctly reframes the conversation if all they saw before was your “retail” self-service pricing of $xx/mo.

Good luck!

About Lincoln Murphy

I am a Customer Success-driven Growth Consultant. I wrote the Customer Success book which you can buy at Amazon. If you need help growing your SaaS, request at least a 15-minute call with me via Clarity. Be sure to join my mailing list - I send awesome stuff to the list every week or so. Also, connect with me on LinkedIn or follow me on Twitter.

1. You touched on this a little in your Note on Discounts in Enterprise SaaS Deals, but how do you feel about using discount pricing as the beginning of a sales funnel?

2. I know you said that in order for a discount to work, there needed to be scarcity. What if a client say, wanted to use a discount at the end of a piece of marketing material such as an explainer video. As a video isn’t inexpensive and will most likely be used over a longer period of time than say, a PPC ad, would you advice using it? And if so, how?

1. Just be careful you don’t attract the wrong customer by constantly dangling discounts in front of them. If you can’t fill the top of your funnel with folks ready to pay full price, there’s something wrong (re-read the post and watch the video on how to fix this). However, if you offer a discount immediately following their initial action – and that discount results in a HIGHER ASV (Average Subscription Value) – then that’s fine and you’re doing things right.

2. See #1, but also I wouldn’t ever put offers, discounts,… even pricing in a fully-produced explainer video if I didn’t also have the funds/resources to change that video frequently since those things will also change frequently. That said, in your example of different ads sending traffic to different landing pages – and therefore videos – I’d have the video fully developed, but produce several different endings w/ different CTAs to splice together for the different landing pages.

I’m glad you’re looking for ways to continue the narrative from the ad to the landing page to the CTA… and beyond. But if you want to do that with video – and do it right – you must have a video that’s congruent with that narrative.

In other words, don’t try to get away with not doing the right thing to just save a few bucks on video production… it will cost you a lot more in the end (on wasted PPC buys).

Great learnings, what aligned with my take aways of selling Value (what is valid in Western markets and then Value is not supported by vendors in their journeys to new markets, for example Russia). Local language support, accessibility, two of such examples. WIIFT is great describing if your Value is addressable on this particular market.

Entrepreneur, especially in SaaS, should be very careful with “simple discount”. The other day, someone told me “I don’t want to go further with this customer because he knows me as the guy who give free consulting”. Word of mouth is very fast, and online brands have to build their image on value, not discount.

I want to emphasise that offering discounts over a long period of time can actually help to get back the CAC way faster than with monthly subscription. Allowing you to increase your investment and to develop your company way faster. David Skok talks extensively about this point in his article SaaS Economics 2 (http://www.forentrepreneurs.com/saas-economics-2/)

Thanks a lot for the insights. We were just planning a Christmas discount offer. I see the value of triggering the offer announcement/message to user acc to their conversion activities – we will be implementing it.

Do you have any opinions on announcing lets say a discount offer on pricing page/homepage (for prospective signups)? Any drawbacks you can share?

The only drawback is that they may sign-up for the discounted plan when they would have otherwise signed-up for the regular priced planed. On a general purpose, public page like that you just don’t have context. That said, you could set a cookie on the first visit and if they return to pricing page a second (or greater) time, show them the discount. They may need that to entice them to sign-up. Then when they go for the discount, make them a one-time-offer for a discount on the next higher plan.

You could also do an exit intent popup that says “before you leave, here’s a discount…”

Ideally, you can build your marketing message around a strong-enough value prop to get them to try the product and then make the offer behind the scenes.

Very helpful post, Lincoln. Your advice about establishing pricing tiers inline with the high-value benefits to customers really caused us to reframe the pricing tiers we’re working to put in place. We were looking to establish pricing tiers from the perspective of our marginal variable cost to support each new unit, but realized from this post that such throttling is of low value to our customers and offers no room to upsell–because customers simply won’t pay for bandwidth they don’t need, nor should they. Good stuff, man.

Thoughts on site wide increases in prices? We plan to increase all our prices on August first. Our software has made serious improvements in stability and features – we believe we have raised the value bar and work closely with our members to affirm this.

Raising your price is fine (and expected as your startup matures and learns from experience)… just make sure you communicate proactively with your existing customers about the change.

Either let them know they won’t be affected by the pricing change (so they don’t panic when they hear about the price hike) or tell them that what they pay will increase, if that’s the case. Either way, just make sure they hear it directly from you first and not from your public announcement.

Your customers think they’re part of a club and deserve special treatment… so give them that special treatment by telling them first.

We read this posting and made a promotion whereby we would double the amount of credits if customers would by before the end of the month and made $3,000 worth of business in one day from folks that were in our free trial and didn’t convert.

[…] A nice hack to grow Customer Lifetime Value (LTV) is to follow that action they take with a One-Time Offer (OTO) to get them to convert to a paying customer right then (to end the trial) or – if they already paid – to take advantage of an even better offer. One way is to offer them a discount, but make sure you offer the right kind of discount. […]

[…] And the exact wording isn’t important here, it’s the sentiment. But don’t talk about volume pricing; leave that for bulk lentils at the grocery store. If you’re going to discount, do it right and drive up Annual Contract Value. […]

[…] or from being included in a bundle with other SaaS products, or by running a discount campaign (the way I do discounts doesn’t cause this problem, but I digress) where we aren’t sure if they’ll stick […]

[…] Be aware that some marketers recommend being careful when using discounts and other similar offers because it may cause customers to become accustomed to getting discounts, or will miss the real value of your product or service. […]

[…] based on usage patterns and where they are on the trajectory toward their Desired Outcome – but the next plan up that they can really grow into. Offer the next “bigger” plan at the same price as the […]

[…] right now we’re offering this huge discount”, you’re probably not on the right track. As Lincoln Murphy points out, the way SaaS pricing discounts are done most of the time will devalue your offering in […]